An NDA has to be properly prepared and used.
Confidential information – trade secrets, know-how and other proprietary information – can be the most valuable intellectual property a business owns. Whether it’s a special formula, customer list, source code or system, confidential information has great value.
With all confidential information, once it’s disclosed without restriction, it’s gone. The information is free for the recipient to use. So, proper protection of this valuable resource is critical.
The first thing to know about NDAs is when not to use them.
Think blind date. If you were to go on a blind date and started talking about marriage and how many kids you wanted, your date would probably run for the hills.
The same applies to NDAs. Never enter an NDA or disclose confidential information when you’re just talking about a possible relationship. It’s rare that the other side needs to know the particulars about your technology in order to initiate discussions.
The first discussion should always be one relating to business arrangements, rather than in depth disclosures about the technology.
Why? Because once confidential information is disclosed it’s out there. You can’t “undisclose” it. While an NDA can be enforced, enforcement is costly and time consuming. And how much damage will be done before a court gets around to your case?
There’s no reason to disclose confidential information too early.
Next, when its time for an NDA, it should be tailored to the particular discussions that will take place. Many times I’ve looked at NDAs for clients and found definitions of Confidential Information include everything the parties discuss. Confidential information should be defined around the particular technology and discussion purposes.
This means that, when one party is disclosing their technology and the other party is evaluating the technology, there’s no need for a mutual NDA. With a mutual NDA and a broad definition of confidential information, you might not be able to utilize improvements suggested by the other side.
But, more importantly, if the suggestion was already in the works as an improvement to your technology, you open your company up to a lawsuit. The other party could claim you breached the ‘mutual’ NDA by using their suggestion even if you didn’t.
Perhaps the most egregious mistake when it comes to non-disclosure agreements is agreeing to a time limit on the obligation to maintain confidentiality. I’ve seen agreements where that limit was as short as two or three years.
In fact, the agreement should require that information be maintained as confidential as long as it is secret and proprietary.
Consider some very important confidential information, the secret formula for Coca Cola. That’s been a secret for well over 100 years. Could you imagine if the founder of Coke had agreed to a three-year limit on a confidentiality obligation?
You probably don’t know the shelf life of your confidential information. So be sure not to limit it arbitrarily.
When you have valuable confidential information in your business, a non-disclosure agreement is one of the most important contracts you’ll enter. Be sure to know how to limit your risks and maximize your protection with the right NDA.
Give me a call if you have any questions about your NDA.